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Oil prices fall to $44 with energy demand sketchy

Oil prices slumped today after China announced no additional measures to revive its economy, and a variety of government reports suggested that energy use could fall further still.

By Chris KahnASSOCIATED PRESS

Thu., March 5, 2009

NEW YORK–Oil prices slumped today after China announced no additional measures to revive its economy, and a variety of government reports suggested that energy use could fall further still.

Light, sweet crude for April delivery fell US$1.77 to settle at $43.61 a barrel on the New York Mercantile Exchange. In London, Brent prices tumbled $2.48 to settle at $43.64 on the ICE Futures exchange.

Market watchers had hoped China would aggressively try to kickstart its economy, but in a speech today, Chinese Premier Wen Jiabao announced no new spending beyond the $586-billion package unveiled in November. The premier did say he expected his country to achieve a growth rate of 8 per cent this year.

Initial optimism over China, and U.S. government reports that crude inventories were lower than expected, has "run out of steam," Newedge analyst Antoine Halff said.

Oil prices shot up yesterday when the government reported inventories tightened unexpectedly, but another round of disappointing economic news today ate away some of that 9 per cent rise.

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"People are taking a second look and realizing the fundamentals are still weak. Demand is contracting," Halff said.

General Motors Corp., which received $13.4 billion in U.S. government loans, said today its auditors have raised ``substantial doubt" about the automaker's ability to continue operations. GM said it may have to seek bankruptcy protection if it can't execute a huge restructuring plan.

The U.S. labour department said new jobless claims and the total number of people receiving unemployment benefits both dropped unexpectedly last week. But the four-week average of new claims, which smooths out fluctuations, increased 2,000 to 641,750, the highest since October 1982.

In Europe, statistics agency Eurostat today confirmed an earlier estimate which showed the European Union economy contracted by an annual 1.5 per cent in the fourth quarter. The 27-country bloc grew 0.9 per cent in all of 2008.

Analysts with Goldman Sachs said in a research note they expected world GDP to shrink 0.6 per cent in 2009. To put that in perspective, world GDP grew 0.9 per cent in 1982, the weakest economic year during the global downturn of the early 1980s.

With so much financial doom and gloom, oil prices should be in free fall, analyst and trader Stephen Schork said. He believes many traders have already priced in the dire state of the economy when considering future demand.

"We know how bad it is," Schork said. "More people are going to lose their homes. More people are going to lose their jobs."

But world demand can't stay down forever, he said, and with OPEC trimming supplies, many traders are positioning themselves for oil to rise again.

"They're all trying to hop on the next commodity boom, and at some point they're all going to start piling on," Schork said.

That same line of thinking is shared by the world's largest publicly traded oil company.

Today Exxon Mobil Corp. said it would increase spending on capital and exploration projects by 11 per cent in 2009 and could invest as much as $150 billion over the next five years.

It also said it could fuel growth another way – by snapping up competitors or partnering with some of the world's nationalized, state-run oil companies.

"We've got the capacity to do any number of things we think will deliver good, long-term value, and we look at all of those all the time," Exxon Mobil chairman and chief executive Rex Tillerson said during a presentation to Wall Street analysts in New York.

Right now, however, the oil industry as a whole is hunkering down.

The Organization of the Petroleum Exporting Countries already has cut production by more than four million barrels a day and may call for additional cuts when it meets in Vienna on March 15.

But there is already talk that Saudi Arabia, the most influential member of OPEC, may resist more cuts.

Leaders of the Organization of Petroleum Exporting Countries have said they would like oil prices above $70 a barrel.

Gas prices in the United States were unchanged for the third straight day at a national average of $1.933 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are up 4.3 cents from last month, but $1.245 cheaper than they were last year.

In Canada, the price of gas at the pump averaged 87.3 cents Canadian per litre, according to price-watching website Gasbuddy.com. In other Nymex trading, gasoline for April delivery fell 6.89 cents to settle at $1.3127 per gallon, while heating oil fell 5.47 cents to settle at $1.1598 per gallon. Natural gas for April delivery tumbled 25.2 cents to settle at $4.088 per 1,000 cubic feet.

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